Pakistan Banking sector faces 10% Quarterly Profit dip

ISLAMABAD – Pakistan’s banking sector is expected to post a 10 percent quarter-on-quarter decline in profits during the second quarter of 2026, as absence of one-off capital gains recorded in the previous quarter weighs on earnings.

The brokerage expects the sector’s profit after tax (PAT) to decline 10 percent quarter-on-quarter to Rs. 121.9 billion, compared with Rs. 135.5 billion in the first quarter of 2026. On an annual basis, profits are projected to edge down by 1 percent, showing higher operating expenses and the return of provisioning charges after banks benefited from provision reversals during the same period last year.

The sector’s profit before tax (PBT) is estimated at Rs254.2 billion, marking 10 percent year-on-year and 11 percent quarter-on-quarter decline. However, a lower effective tax rate of around 52 percent is expected to cushion the impact of weaker pre-tax earnings.

Despite a cut in overall profitability, banks’ core lending business is expected to remain resilient. Net interest income (NII) is forecast to climb 5 percent year-on-year to Rs. 409.4 billion, supported by stronger loan growth, policy rate adjustments, and the repricing of earning assets. On a sequential basis, NII is expected to increase by 4 percent.

Non-interest income is expected to come under significant pressure. Topline Securities estimates it will fall to Rs. 84 billion, down 13 percent from a year earlier and 31 percent from the previous quarter, primarily due to the absence of exceptional capital gains that had lifted earnings in recent quarters.

Another major drag on profitability is expected to come from higher provisioning. Banks are projected to book Rs8.5 billion in provision expenses during the quarter, compared with a provision reversal of Rs. 1.3 billion in the same period last year. Provisioning is also expected to surge 6.5 times from the first quarter of 2026, indicating a normalization in credit costs.

Despite softer earnings, dividend payouts are expected to remain intact as banks continue to benefit from strong capital positions. MCB Bank is likely to announce a quarterly dividend of Rs. 9 per share, while UBL is expected to maintain a payout of Rs. 8 per share, keeping them among the sector’s top dividend-paying banks.